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When will the tech market misery end?

With Framlington&#39s NetNet investment trust set to take its last breath before the year is out, technology investors may well be wondering if there will ever be an end to the TMT industry&#39s relentless flow of bad news.

While most investors in the Framlington fund had already written off their hopes of seeing any recovery several months ago, NetNet&#39s collapse has also come as an unwelcome reminder to other TMT investors of the current state of the market. Eighteen months after the tech market collapsed, technology indices are still heading South, with no strong signs of recovery to have yet emerged.

Autif&#39s technology and telecoms sector illustrates the bleak story well. Over the past 12 months alone, the sector&#39s best-performing fund is down by 49.1 per cent while the worst performer is down by more than 80 per cent. Current winner of the wooden spoon award is Edinburgh Fund Managers&#39 technology fund, which over the last year has turned £1,000 into a pitiful £181.

While it is investors who got in at the top of the market in March 2000 who will have been hardest hit, it is clear that those who bought funds last summer are not in much better shape.

Having seen markets collapse, many believed the summer of 2000 presented a strong buying opportunity, not realising that the downturn had only just started.

Despite the stories about trusts such as NetNet and Aberdeen&#39s struggling European & technology trust,most technology fund managers remain positive about the industry&#39s longer-term prospects.

Brian Ashford-Russell, who manages the Polar capital technology investment trust, says he is starting to reduce his fund&#39s cash levels and is getting back into the market.

He says: “Investor sentiment now seems just about as bad as it can get and every economic and political doom-monger is enjoying their moment of fame. There are undoubtedly significant risks both at a macroand a micro-economic level but, with value now increasingly evident, it seems appropriate to start investing our cash.

“Although we are doing so with some trepidation, we believe that, on a medium-term view, the fourth quarter of 2001 will prove in retrospect to have been a good buying opportunity for investors.”

Not all managers agree, however, with some believing that the effects of last March may still be felt for some time. David Watson is a fund manager for US firm Montag Caldwell and is set to run ABN Amro&#39s North American fund, which launches next week.

He has been reducing his exposure in technology since the start of last year and is now heavily underweight in the sector.

Watson says: “Technology companies have a difficult problem – they have excess capacity. But even if demand comes back, price competition will be ruthless and profit margins will not be where they were. Bubbles always end badly and they take a long time to work their way out of the marketplace.”

It would seem that IFAs and retail investors share the views of people such as Watson rather than the more optimistic opinions of technology managers. According to the latest Autif statistics, sales of technology funds have dropped to below 0.75 per cent of all industry unit trust and Oeic sales compared with two years ago, when they accounted for more than 10 per cent.

For many IFAs, there has not been a conscious decision to keep their clients away from technology but most find that investors are not interested in the sector after their experiences of the past 18 months.

Hargreaves Lansdown head of research Mark Dampier says: “If you put £7,000 into the market last year and it is now worth £1,500, it is a pretty shattering experience. I think it will put a lot of people off investing for quite a long time.”

Dampier says Hargreaves Lansdown has not been pushing its clients towards technology funds because most investors are already overweight in the sector through their individual fund holdings. Like Watson, he believes that burst bubbles can have longterm repercussions for a sector. He says: “The history of bubbles is not on the side of the fund managers here. The market traditionally goes down and down until finally it just goes sideways for a long time.

“When the market does go up, there is going to be a lot of selling as people finally get back to where they started, so it is going to be a long, torturous journey back, I think. I hope I am wrong.”

While market history has proved to repeat itself in the wake of many crises, there is by no means a set formula and although all the arguments stack up for an eventual global recovery over the next year, the technology market has proved that it has got the capacity to keep on falling.

It will be a brave investor who turns to the TMT sector at this time but at least the downside from here now looks incapable of matching the carnage that has taken place since March last year.


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